Newriver Reit Share Discussion Threads

[mrtenpercent] 04/9/2018 14:15

chuck01: 'The argument that ALL rents will be pressurised by the current situation simply has not yet be born out '

Yes that's true, and I hope I haven't said anything to make it look like I think all rents are going to fall.

Here's another swallow: a friend owns a secondary shopping centre in the West Midlands. Anchored by a supermarket with 6 units and flats over. Car park at the rear. Sensible service charge covenants in the leases. Well managed by a specialist firm. Recently hit by an end-of-lease vacation of one of the units, re-let after a short void period to a nail bar at slightly HIGHER than the previous passing rent, swiftly followed by a renewal of the adjacent unit where the tenant argued that the nail bar had not been professionally advised and the evidence was therefore compromised. But in the end the renewal was agreed at the same rent as the nail bar, ie: an uplift. So that will cascade along the rest of the parade. The uplift wasn't much but my point is that it is wrong to think that all retail rents are going to fall. That simply isn't true. Did I mention Mountain Warehouse? The owner was recently reported as saying he is still having to pay the odd premium to secure the best sites.

Just noticed:
*the NRR share price is at an interesting support level, see:
*Quite a large trade this morning,classed apparently as a Buy:
10:55 - 04/09 Buy 246185 @ 260.25p £640,696.46
* But still over 5% short:

[essentialinvestor] 04/9/2018 13:47

I would keep some cash on hand for sector opportunities.
Without getting drawn in to the interminable Brexit debate,
we are approaching a crunch point within months.
If the Tory party struggle to get a deal passed by the HoC,
that's when you want some funds available.

[chucko1] 04/9/2018 13:31

The takeaway from that is that whoever said “location, location, location” might have had a point. It’s still too early to extrapolate anything here too far, but these relettings statistics are by some distance the key metric for me in terms of judging NRR’s medium-term direction of travel (for a given share price and acquisition yield).

Let say this year that 4% of their rent roll is affected by bust retailers. Meaningless in of itself. It’s the actual annual like-for-like rent roll that matters so perhaps we hear too much about the parlous state of retail without considering the reaction function actually being experienced by NRR and some others. The argument that ALL rents will be pressurised by the current situation simply has not yet be born out and I believe the certitude that it will be may prove to be a mistake.

[speedsgh] 04/9/2018 12:44

Thanks to link provided by ShareSoc's @marben100 on Twitter...

Cycle Republic completes new 10yr lease on former Maplin unit within one month of unit becoming vacant at rent level 25%+ higher than previous passing rent. CAVEAT: Just one piece of evidence highlighted by NRR themselves ("one swallow doesn't a summer make"; they will obviously not highlight the negative stories within their portfolio) but of interest all the same.

Cycle Republic opens at Allison Court Retail Park, Gateshead -

[essentialinvestor] 04/9/2018 11:23

Interesting post.

[chucko1] 04/9/2018 11:09

There are two things that will kill a REIT.

1. Very significant and protracted fall in rents (significant and protracted are correlated)
2. High LTV

LTVs are significantly lower as compared with 12 years ago, just prior to even the best REITs getting smoked. Those which were able to maintain income recovered smartly to their pre-bubble levels. What happened between 2004 and 2006 was quite insane, but that is what can happen when leverage is not awarded the correct risk premium.

In fact, there is a risk to being too negative. Take PHP as an example; investing in 1996 and keeping it through all market conditions would have led to an IRR of just under 13% whereas investing at its peak in 2006 lowers this drastically to 5.5%. So of course, one wants to identify bubbles, but there is a severe risk of misidentifying them. In 2009, waiting just one more month until one thought PHP was cheap lowered the return for the next 9 years from 13.8% to 10.4%. Not a mistake I want to make!

So talking generally about REITs makes little sense to me, unless we approach 2006-like conditions. We are nowhere near that point. THat said, I would agree that the retail sector is grim, but take these examples: average prime retail rents in Birmingham, Cardiff, Leeds and such like were around £120 per sqft as compared with NRR which runs to a small fraction of that. Prime and convenience are totally different things although I can see some aftershock at some stage, but I am happy that this is amply compensated for at its current price.

As for yield compression, I wonder. We have seen it over the past 15 years in Japan and no end in sight. 10 year rates sub 1%. Where there’s secure inflation-protected income of 5% or so in a 1% yield environment (actually 1.5% in the U.K.), this is really competitive absent of structural deficiencies.

Covenant-lite loans in High yield is another matter altogether!! Why has this monster reappeared whereas High LTVs in real estate have not? The answer is in the appetite for CLOs (requiring loans as the underlying assets) which has been all the rage for some years, whereas appetite for CMBS which requires real estate financing as collateral continues to be muted. The pains from 2006-9 still linger in the real estate market and that is a good thing. In my opinion, this does not protect residential which has become a far more emotional thing.

[mrtenpercent] 04/9/2018 10:31

Off topic but there seem to be some helpful people here....

This question might have a better home in another thread, I don't know.

All I want from ADVFN is the discussion boards. I get my share prices etc. elsewhere. I have given up on Interactive Investor since they changed their website and am looking for a new home. I am paying £110 p.a. for a bronze subscription here but can't seem to access all the boards. For example I can't use the main Vodafone board, I keep getting "timed out" and told I have used up my free access, which is ridiculous because I am not free, I am paying. Do other posters here pay an ADVFN subscription (if so, which one?) or am I missing a way to access the BBs without paying?

[mrtenpercent] 04/9/2018 10:27

hpcg -
4. Agreed, for those with good visibility
3. Depends. For a long time I have been negative about parades on arterial roads with no parking. Neighbourhood parades can be better if they are in locations where people will walk to the shops, or if they have parking. I don't agree there will always be enough tenants at current rents. I foresee rents coming down. Many of these investments are in small portfolios with limited capacity to pay Business Rates on vacant units. Something a lot of people forget - when a unit is vacant the landlord has to pay the rates, insurance, and repairs (also service charge if it's in a "centre". The temptation to re-let at any price just so the landlord doesn't have a negative cash flow is enormous. Hence the proliferation of charity shops who typically don't have to pay rates.
2. Agreed
1. Agreed.

I still think that the most risky properties are the medium-sized sheds in second-rate locations, mostly edge-of-town. There are very few new operators coming through to occupy the space when they fall vacant. And the vacancy costs for landlords are breathtaking. Doesn't apply to NRR much though.

[spectoacc] 04/9/2018 09:57

@fenners66 - not so much bubble as the inevitable business cycle. We've not had a recession for a decade, and a whole generation only know super-low interest rates. Of course, we might now be Japan, and this the new normal - but I doubt it.

"Only when the tide goes out do you see who's been swimming naked".

[Edit - should add I'm long NRR, and over-exposed already to property, eg AEWU, SHED, RGL, WHR.]

[fenners66] 04/9/2018 09:04

"when that merry-go-round stops" - sort of Tulip Shops then .... ?

[spectoacc] 04/9/2018 09:00

@MrTen - I may have worded that badly, didn't mean anything underhand going on. Simply that many new REITS have raised money and are buying assets at what I see as pretty heady valuations, but which themselves justify the surveyors' views on book values for the sector. And in many cases, they're "recycling" at a profit to other buyers - for the moment - making smoe book values even seem conservative.

As and when that merry-go-round stops, whether due to recession or Brexit or something else, book values will head the other direction, with corresponding effects on LTVs. Is only so far that yield compression can take you.

[mrtenpercent] 04/9/2018 08:15

"A lot of trade going on between each other to justify current book valuations, but it won't last."
I hadn't thought of that. Sounds nasty. Have you got evidence of it? I'm not suggesting you made it up but I thought maybe if there is a way of finding that out I could add it to my checklist. I already check for short sellers before buying anything and this would be a similar check.

I was still tempted by NRR, for the watchlist at least, but I started going through their portfolio, centre by centre, cross-checking with agents' websites..... Horror story in some of their centres. I quickly found evidence that suggests lease renewals are going to result in lower rents. No way would I invest anything significant in this business without driving round a few of their centres and checking the facts on the ground.

Just for a laugh, I dug out my old college copy of "Modern Methods of Valuation". Secondary shop property investments stated to typically yield 8% (12.5 YP). Of course in those days a secondary shop was a traditional building or a post-war housing estate parade, not a shopping centre, but even so.....

[spectoacc] 04/9/2018 06:49

@fenners66 - it can't, but how much is already in the price? Perhaps not yet enough, but eg NRR valuation, and 30% discounts on the big REITS, are factoring in some at least.

I'd add the (many) small investment trusts/REITS, seemingly on low LTV's, who trade a little too close to (or even at a premium to) NAV, and have been buying heavily in the past few years at what may turn out to be the peak of yield compression. A lot of trade going on between each other to justify current book valuations, but it won't last.

[fenners66] 03/9/2018 23:40

That is a quite damning article and of course it could be biased.

However if they large companies are really intending share buy backs - though that is seen as a positive sign by many I perceive it to be ridiculous with companies that must have large borrowings.

Add to that the idea that £10bn of retail is supposed to be for sale and it seems unlikely that retail valuations can be held as it will be a buyers market and that affects all valuations.


Just watched an episode of Grand Designs a re-run from 2007.
The house builder was hit buy a bank devaluation and they stopped loaning funds for a year, eventually resumed but at a much higher cost - he put it as the bank had him bent over the desk with him expecting to drop his trousers.

Metaphorically how can the retail market avoid similar ?

[skyship] 03/9/2018 14:56

Held off on my LAND purchase due to the reasons discussed below:

[eeza] 31/8/2018 11:48

On today's BBC Business news

"Retail analyst Richard Hyman has a simple and stark diagnosis of Homebase's problem on the Today programme. The DIY chain is facing a vote on its turnaround plan today.

"While the costs of operating shops have stayed pretty much the same, the sales that go through shops have gone down.

"The economics of running stores has changed fundamentally, and retail cannot any longer afford to pay the kind of rents that it has historically."

"Landlords have got to accept a lower rent," he says, adding that this means lots of property is overvalued, which could have huge implications for pension funds."

[fenners66] 31/8/2018 00:36

MARKET REPORT: Shopping centre owners become latest links in retail chain to take a beating, as brutal review of their prospects is published
By Lucy White For The Daily Mail - August 30th 2018, 10:03:30 pm

[mrtenpercent] 30/8/2018 17:54

Thanks chuck01 - I hadn't noticed that in addition to WIM holding shares at least one of his funds also holds shares. And then there's Invesco with 15% - I wonder what they think of all this. What's obvious to me is that even if you believe NRR is a buy on a Value investing basis you can see why the shorts are there. They see a REIT in an unfashionable sector (it doesn't get much more unfashionable than UK retail property), where a huge percentage of the shares are under the control of an investor who is under the most enormous pressure. Even if the shorts wince a bit when they have to cover the dividends I bet they will hold on unless the directors of NRR can find someone to buy a big chunk of Woodford's holding. I will watch closely and buy when the Woodford intentions are clearer and the short interest has diminished. There is nothing I like more than a short squeeze but I see no signs of that in NRR.

BTW I think this is a textbook example of why it is dangerous to invest in businesses where there is one big shareholder unless there is a good reason to believe their holding will never be dumped. The way I see it, it's usually not the actual dump that matters, it's the fear of the dump overhanging the shares that does the damage, and the opportunity which that presents to shorts.

[hpcg] 30/8/2018 17:39

Invesco equity income were mentioned in the IC as dog funds, i.e. serial under performers. This is even long since Woodford left. There ought to be some sort of press release but I can't find it. Anyway, those funds must also be at risk of redemptions.

chucko1 - fair enough, share price and fundamentals are not the same, but I'd rather pile in at a great price and large discount than load up at what looks like a good price only to see my capital underwater.

[chucko1] 30/8/2018 16:34

When NW left Invesco and started WIM, there was talk about block sales of holdings from the former to the latter. I see nothing to suggest that this is no longer a possible course of action.

On NRR, I think he is more bullish on this one than most of his others, and even as the funds are losing investors - 40% in the Income Fund and counting, he had added to his NRR position. But were the worst fears abiut NW to come to pass and the size of the fund halves from here, his holding in NRR would be approaching 5.5% which is still not really in danger-zone territory (cannot have more than 10% in a single stock). He currently has 9.1% in Imperial Brands, so that would have to be booted in part.

Average daily volume on NRR is 650k shares. He has 60mm of the things so a 1% reduction in his holdings is a day’s volume. That makes it a really tough market sale!

Well, I was going to leave it there until I took a quick look on Bloomberg and a I noticed that, in fact, it reports that as of July 31st, the Income Fund has sold 1.3mm shares. If this is true, and it is not merely that he transferred them into the Income Focus Fund, this appears very meaningful to me. Not so much because 1.3mm is a difficult sale, but indicates a long and negative direction of travel.

Some may think this a bad thing. I don’t, as it is not a statement of fundamentals. Rather, it may explain the weak price action more so than investors’ perception of NRR’s exposure to the risk of further High Street woes. But the process would be painful and the price would stay lower for longer. Again, though, one could easily take advantage of that.

[fenners66] 30/8/2018 16:00

I guess its a fair point about Woodford , is the set up such that the funds hold investments in WIM so they are linked anyway?

[mrtenpercent] 30/8/2018 15:12

I have to build an income portfolio at the moment to replace the income from Buy-to-Let properties which we are selling and I have been looking at NRR. I was a retail surveyor/property manager for many years and so far my research suggests NRR is a serious contender for inclusion, except for two huge flies in the ointment: the Woodford 28% (+Invesco 15%?) holding and the shorts who have been piling in for the last year. I suspect the two factors are linked and the short strategy is based on an assumption that Woodford will have to sell due to redemptions and such a large sale in a market that distrusts retail property will have a catastrophic effect on the share price. But I am puzzled because it isn't Woodford's funds that hold NRR, it is Woodford Investment Management (WIM) which seems to be separate legally from the funds.

Does anyone know whether fund redemptions in Woodford's two open ended funds (Income Focus & Equity Income) might force a sale of all or part of the WIM holdingin NRR? Obviously the Patient Capital Trust doesn't have redemptions as such.

And if such a sale is a real risk, can the directors of NRR do something to prevent the shares being dumped on the open market by going out and looking for institutional buyers to take Woodford's holding off his hands? Or is that illegal in some way?

[hpcg] 30/8/2018 11:11

OT Interesting evidence from the real world, Waymo in Arizona, that software struggles with pulling out when it is potentially dangerous; in other words they cannot cope with heavy traffic.

We should be careful not to assume that the listed REITs are the market. A lot of property is owned by pension funds at home and abroad, open ended funds, and to a lesser extent private individuals including family offices. As with our own investing experience we should anticipate that the further away the investor is the more likely they are be out of touch with trends. Think Bunning's disastrous Homebase experience. On the other hand the London listed REITs largely have experienced hands on deck, and feet on the ground. Which is not to say they can be immune to the world around, but might navigate more successfully.

[speedsgh] 30/8/2018 10:53

@Specto - Great post 603. What is the retail park near you called? Do you know who owns it?

EDIT - That list of occupants is truly scary. The only ones I would be confident about are McD & Currys. And if the owners struggle to fill the empty units, those two will likely been on their way too due to severely reduced footfall.